A property that produces an annual NOI of $100,000 was purchased for $1,200,000.Debt service for the year was $95,000 of which $93,400 was interest and the remainder was principal.Annual depreciation is $38,095.What is the taxable income?

Question

Quizplus · Accepted Answer

First, we need to calculate the before-tax cash flow (BTCF), which is the NOI minus the annual debt service: 
BTCF = NOI - Debt Service 
BTCF = $100,000 - $95,000 
BTCF = $5,000

Next, we need to calculate the taxable income: 
Taxable Income = BTCF - Depreciation 
Taxable Income = $5,000 - $38,095 
Taxable Income = -$33,095

Therefore, the answer is (C) -$31,495 because it is the closest choice to our calculated taxable income (-$33,095).

A Property That Produces an Annual NOI of $100,000 Was